The way we store our money today makes zero sense.
Yet in the next decade, converging technologies will make our money work for us, and for our values.
Just last year, the Environmental, Social, Governance (ESG) fund group—investments targeting socially responsible, sustainable causes—brought in $5.5 billion in net cash flows. And already, total assets under management (AUM) in this category total $2 trillion—nearly a quarter of all institutional investment.
A whopping 90 percent of millennials surveyed by investment management firm Nuveen expressed willingness to transfer their portfolios to responsible investment strategies. And this same millennial generation is expected to inherit US$30 trillion and make up 75 percent of the workforce by 2025.
Technology has enabled more transparency in investing than ever before, and investors are looking to do more with their money than traditional passive funds allow.
Over the next three blogs, we will delve into the future of money and how exponential technologies are disrupting the finance and banking industries. Today, we’re looking at the future of impact investing.
Let’s dive in…
The Good Money Story
Gunnar Lovelace grew up poor. He was raised by a single mother in an intentional community in California, and never forgot his family’s struggle to meet basic needs, chief among them food and money.
Lovelace went on to become a serial entrepreneur, and while his first three startups were in tech and fashion, he poured those profits into his fourth venture, Thrive Market— or his attempt to solve the struggle for food.
Thrive uses eco-friendly packaging, zero-waste shipping, and nontoxic ingredients to deliver high-quality organic food at lower prices directly to the doors of over 9 million consumers.
But Thrive only solves the first of Lovelace’s problems. There’s still the struggle for money to consider.
This brings us to his fifth company, Good Money, which is using this same value-driven approach to take on the storage side of traditional banking.
Right now, most of our money sits in banks, and we’re largely abused for the privilege. On average, we pay $360 a year in banking fees. The larger banks, meanwhile, average $30 billion a year in overdraft charges alone.
But where things go truly sideways is what the banks do with our money.
Banks get to invest our money, typically at significant profit, wherever they see fit. This often includes projects that don’t align with customers’ values.
Wells Fargo, for instance, lost a ton of business when they were outed as major backers of the controversial Dakota Pipeline. So while the bank is making bank, not only is your money not working for you, it might actually be working against you.
Good Money does the opposite, in a half-dozen different ways.
Technically a mobile wallet, Good Money lives on your phone and holds both regular and crypto currencies. It can be used at any ATM, with zero annual fees, no ATM charges, and an interest rate a hundred times larger than most banks.
Customers also become owners. Put money into Good Money and you get an equity share in return, while the company funnels 50 percent of its profits into impact investments and charitable donations.
With this strategy, Good Money draws in people who prefer value-driven companies, and the 40 million Americans who have been driven out of the traditional banking system by overdraft fees and blackball lists.
ESG was first coined in 2005 in a UN initiative report titled, “Who Cares Wins.” Since then, ESG guidelines have steadily made their way into numerous investment theses across the globe.
Today, 80 percent of the world’s largest corporations follow Global Reporting Initiative (GRI) standards, which encourage firms to release information that then educates ESG investments.
And global efforts continue to emerge.
The UN-backed Principles for Responsible Investment (PRI) is a booming international initiative with over 1,600 members, together representing over $70 trillion in AUM. The PRI aims to integrate ESG into financial decision-making by supporting thought leaders and creating tools that promote transparency.
Leading the way in impact investing are firms such as Vital Capital Fund, Triodos Investment Management, The Reinvestment Fund, and BlueOrchard Finance S.A.—all with $280-$300 million in AUM.
ESG investments not only promise responsible impact, but they have also demonstrated greater financial returns than their traditional counterparts. Across 2,200 studies on ESG, 90 percent show either a positive or non-negative relationship to corporate financial performance.
Or take a finding by asset management startup Arabesque, which discovered that S&P 500 companies that ranked in the top quintile for ESG factors outperformed those in the bottom quintile by more than 25 percentage points from 2014 to mid-2018. Even stock prices of the high-ESG companies were less volatile. And McKinsey reports have reached similar conclusions.
Altruistic impact visions aside, ESG investments clearly demonstrate financial advantages as well. Driven by these powerful economic incentives, important social efforts will be collectively mobilized into action faster than ever before.
And tech-driven tools like Good Money will soon lead the charge.
The movement of money is no longer just for personal gain. ESG investment vehicles fuel broad social impact by allowing individuals to contribute their assets more purposefully.
From a purely economic standpoint, ESG funds perform better than their non-ESG counterparts. Yet the addition of a social mission to these investments has the power to truly shape our future progress.
The rise of impact investing, and the technological tools that facilitate it, will surely disrupt the way society tackles some of today’s most pressing global issues: climate change, corruption, social inequality, and more.
In our next blog, we’ll unpack another investment strategy—driven by new technological converges—with broader societal implications: microfinance. Stay tuned.
(Note #1: This blog comes from The Future is Faster Than You Think—my upcoming book, to be released Jan 28th, 2020. To get an early copy and access up to $800 worth of pre-launch giveaways, sign up here!)
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